In real estate purchase and sale contracts, guarantees such as deposits, earnest money, and contractual penalties play an essential role in protecting the interests of both buyer and seller. These elements provide security to the transaction and strengthen the commitment between the parties, offering solutions for potential breaches.
The analysis of types of earnest money, the impact of penalties, and the possibility of specific performance of the contract reveals how these tools function in practice and how Brazilian law protects the buyer when the seller’s interest changes.
The Role of Earnest Money and Deposit in Contractual Commitment
The deposit, also known as earnest money, is an amount paid by the buyer at the time the contract is made as confirmation of the commitment to buy. In Brazil, the distinction between confirmatory and penal earnest money is crucial as it determines the right to withdraw and the consequences in case of a breach.
While penal earnest money allows withdrawal from the contract by returning the received amount doubled, confirmatory earnest money reinforces the commitment between the parties, limiting the possibility of withdrawal. In real estate purchase and sale contracts, confirmatory earnest money is frequently chosen to prevent unilateral withdrawal, especially after acceptance and payment of the deposit.
Irrevocability and Non-Retractability Clause: Limits to Withdrawal
Real estate contracts often include an irrevocability and non-retractability clause, preventing unilateral termination of the agreement. This clause is especially relevant to protect the buyer in situations where, after the deposit payment, the seller receives a more advantageous offer and wants to withdraw from the initial sale.
With this clause, the seller is legally prevented from terminating the contract to accept a higher offer, even if they are willing to return the deposit doubled or pay a penalty.
In such cases, the irrevocability and non-retractability clause ensures the buyer’s right to proceed with the transaction under the previously agreed price and conditions.
Buyer Protection: Specific Performance of the Contract
The Brazilian Civil Code offers the buyer the option to seek specific performance of the contract as a guarantee against unjustified breach by the seller. Even if the seller claims interest in paying a penalty or returning the deposit, the buyer has the option to judicially demand that the contract be fulfilled according to the original terms.
This prerogative is provided in Article 475 of the Civil Code, which protects the buyer in situations where the seller attempts to undo the contract after receiving the deposit.
In this way, the buyer not only preserves their acquisition right but also avoids financial losses by securing the purchase of the property at the agreed-upon price.
Application of Contractual Penalties
Contractual penalties serve compensatory and punitive purposes and apply to either party in the event of a contractual breach. In real estate purchase and sale contracts, the provision for penalties aims to discourage the seller or buyer from withdrawing from the transaction without valid justification.
In case of withdrawal, the defaulting party is penalized with a proportional penalty payment, which may be allocated to cover potential damages and negotiation costs. However, for the seller, even with penalty payment, withdrawal may not be allowed if the contract stipulates confirmatory earnest money and includes an irrevocability and non-retractability clause.
Buyer Protection Against Subsequent Offers
Brazilian law considers that, by entering a purchase and sale contract with confirmatory earnest money and irrevocability and non-retractability clauses, the seller cannot terminate the contract to pursue a later, more advantageous offer. This protection ensures that the buyer, upon payment of the deposit, can rely on the execution of the contract and is not harmed by a change in the seller's interest.
Thus, in contracts with these guarantee elements, the buyer has the right to judicially demand the completion of the transaction and the transfer of property ownership.
Conclusion
The guarantees offered in real estate purchase and sale contracts, such as deposits, confirmatory earnest money, irrevocability and non-retractability clauses, and contractual penalties, form a robust protection system that aims to ensure the stability of real estate transactions and the buyer's security.
These guarantees not only reinforce the commitment between the parties but also provide the buyer with the option to demand specific performance of the contract.
In this way, the seller is prevented from unilaterally withdrawing, even if more advantageous offers arise after initial acceptance, preserving the buyer's right to purchase the property under the previously established terms and conditions.